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FINALTERM EXAMINATION
Spring 2009
ECO401- Economics (Session - 2)
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When an industry's raw material costs increase, other things remaining the same:
► The supply curve shifts to the right.
► Output increases regardless of the market price and the supply curve shifts
upward.
► Output decreases and the market price also decrease.
► The supply curve shifts to the left. .
(http://andromeda.rutgers.edu/~alvaror/sample-I-Micro1.pdf)
solution= Ped= % change in Q demand /% change in Q Price= 10%/12%= 0.5 where e>1
elastic
e<1 inelastic
► Perfectly elastic.
► Unit elastic.
► Elastic.
► Inelastic.
Reference by salman
If, for example, a 20% increase in the price of a product causes a 10% fall in the Quantity
demanded,
20%
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► Useless.
► Require.
► Necessary.
► Satisfaction.
► The consumer would not spend any additional income to buy more of that good.
► Consumption of additional units would have positive marginal utility.
► Total utility is minimized.
► Total utility is also zero.
► An inferior good.
► A substitute good.
► An independent good.
► A normal good.
► Positive issues.
► Normative issues.
► Micro issues.
► Macro issues.
► Cournot model.
► Cobweb model.
► Dominant firm model.
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► Kinked demand model.
Reference by shoaib
A kinked demand curve explains the “stickiness” of the prices in oligopolistic markets. The main
insight is that if one firm raises prices, no one else will and so the firm will face declining revenues
(elastic demand). However if one firm lowered its price, everyone else would lower their prices as
well and everyone’s revenues, including the first firm’s revenues would fall (inelastic demand).
Reference by Asim
http://www.pinkmonkey.com/studyguides/subjects/eco/chap12/e1212101.asp
Reference by shoaib
Cartel: A cartel is most likely to survive when the number of firms is small, there is openness
among firms regarding their production processes; the product is homogeneous; there is a large
firm which acts as price leader; industry is stable; government’s strictness in implementing
antitrust (or anti-collusion) laws.
Reference by Asim
1. Only a small number of firms exist in the industry and barriers prevail to entry protect the
monopoly power of existing firms in the long run
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2. Market demand is not too variable i.e. it is reasonably predictable and not subject to erratic
fluctuations which may result to excess demand or excess supply
3. Demand is fairly inelastic with respect to price so that a higher cartel price fetches increased
total revenue to suppliers in the market
4. It is easier to monitor each firm’s output. This enables the cartel more easily to regulate total
supply and identify firms, cheating on output quotas
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► The price level increases.
► Factors of production (such as labor and capital) increase.
► Expenditures (such as consumption and net exports) increase.
► The prices of inputs used to produce goods and services (such as wages and the
price of oil) decrease.
http://www.bized.co.uk/learn/economics/qbank/income1.htm
► As firms increase their level of output, the cost of producing an extra unit
increases.
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► An increase in aggregate demand causes little, if any increase in real output the
economy is operating in the long run.
► Any increase in aggregate demand causes the output of producers to fall because
the general price level rises.
► None of the given options.
► Aggregate demand curve is downward sloping and the aggregate supply curve is
vertical.
► Aggregate demand curve is downward sloping and the aggregate supply curve is
upward sloping.
► Aggregate demand curve is vertical and the aggregate supply curve is upward
sloping.
► Aggregate demand curve is vertical and the aggregate supply curve is horizontal.
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► The number of carrots in your refrigerator at the beginning of the month.
► Government debt.
► Capital.
► The amount of money held by the public.
► Inventory investment.
► 0.2.
► 0.4.
► 0.6.
► 0.8.
► A deflationary gap.
► Hysteresis.
► Hyperinflation.
► An inflationary gap.
► Appreciate.
► Depreciate. http://ingrimayne.com/econ/monetaryhistory/quiz15a_new.htm
► Not effect.
► All of the given are possible.
► Market on which currencies of various nations are traded for one another.
► Price of one unit of foriegn good in terms of domestic good.
► Price of one unit of foriegn currency in terms of domestic currency.
► All of the given options.
► State bank.
► National bank.
► Finance minister.
► World bank.
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AA
Differentiate between Marginal Propensity to Consume (MPC) and Marginal
Propensity to Save (MPS).
B. Suppose a household has the consumption function (C) presented in the figure
given below:
a. Find consumption when disposable income is $8,000 and $10,000.
b. Find consumption when disposable income is $ 6,000. How can a
household consume more than its disposable income?
c A What is true for every point on the 450 line?
C
Consumption ($)
9,000
B
8,000
7,000
450
6,000 8,000 10,000
Disposable income ($)
(Marks: 4+6)
(Marks:4+6)
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d) Money supply (M) =150, velocity of money (V) = 8, Price level (P) = 3.
Calculate the missing value.
PAPER NO 2
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Downward movement along the supply curve.
Less than 0.
Equal to 0.
Greater than 0.
Between 0 and 1.
If a market basket is changed by adding more to at least one of the goods, then
every consumer will:
If prices of both goods increase by the same percentage, the budget line will:
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High costs.
Low costs.
Equal costs.
None of the given options.
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demand.
Standardized.
Differentiated.
Differentiated if industrial goods.
Differentiated if consumer goods.
The oligopoly model which predicts that oligopoly prices will tend to be very rigid is
the:
Cournot model.
Cobweb model.
Dominant firm model.
Kinked demand model.
In the kinked demand curve model, if one firm reduces its price:
Under the kinked demand curve model, an increase in marginal cost will lead to:
Cartels are:
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An increase in the wage rate:
The Great Depression of 1930s opened the door to the __________ revolution in
macroeconomic theory.
Keynesian.
New classical.
Old classical.
New Keynesian.
A recessionary gap.
Expansionary fiscal policy.
Contractionary monetary policy.
Waiting for self-correction to work..
Full employment.
Flexible wages and prices.
Equality between saving and investment.
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High rates of unemployment.
According to classical economics, the economy will always tend toward full
employment due to:
Minimum wages.
Flexible wages and prices.
Extended periods of unemployment.
Inequality between saving and investment.
A stock variable.
A flow variable.
Both a stock and a flow variable.
Neither a stock nor a flow variable..
45-degree line..
Consumption function. (online book)
Investment function.
Consumer price index.
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Which of the following plays the key balancing role in making sure that the
economy reaches and stays at equilibrium at the potential output level?
Deflation is:
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A decrease in the overall price level.
The record of a country's transactions in goods, services and assets with the rest of
the world is its:
Current account.
Balance of trade.
Capital account.
Balance of payments.
If a Japanese radio priced at 2,000 yen can be purchased for $10, the exchange rate
is:
In the exogenous growth model, if investment exceeds depreciation, the capital stock
will ----------- and output will-------------- until the steady state is attained.
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Increase; increase.
Increase; decrease.
Decrease; decrease.
Decrease; increase.
Endogenous growth theory differs in what essential aspect from the Solow theory of
economic growth?
Endogenous growth theory is a monetary theory whereas the Solow theory is a real
theory.
Endogenous growth theory assumes diminishing returns to capital and the Solow theory
assumes constant returns.
In endogenous growth theory, economies with the same technology and saving rate need
not converge to the same steady state as in the Solow model.
www.oup.com/uk/orc/bin/9780199264964/01student/mcqs/ch18/
All of the given options are correct.
A tax system in which the marginal rate of taxation is higher than the average rate
is known as:
Rise.
Fall. (online book)
Remain unchanged.
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None of the given options.
In the Keynesian cross model, the aggregate expenditure line has a slope of:
1.
0.
Infinity.
Less than 1.
In the Keynesian cross model, the 45-degree line has a slope of:
1.
0.
45.
Infinity.
Explain the differences between Classical and Keynesian School of thoughts about the
aggregate supply curve with the help of graphs?
(Marks: 5+5)
Define fiscal policy. Differentiate between contractionary and expansionary fiscal policy.
In which situations, budget deficit and budget surplus exist?
(Marks: 2+4+4)
A. Discuss the components on the assets and liabilities side of the balance sheet of State
Bank of Pakistan?
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Loans = 90
Deposits = 100
Reserves = 10
Prepare the balance sheet in proper form and find out total assets and total liabilities.
Firm A deposits Rs.50 in bank A. Prepare the balance sheet in proper form and find out
total assets and total liabilities.
(Marks:4+3+3)
------------------------------------------------------------
3 co m m e n t s
FINALTERM EXAMINATION
Spring 2009
ECO401- Economics (Session - 2)
► Inferior good.
► Complementary good.
► Normal good.
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► None of the given options.
► Quantity demanded.
► Quantity supplied.
► Price.
► Output.
► -14.
► 14.
► 83.
► 97.
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► A decreasing marginal rate of substitution.
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McDonald's restaurant located near the high school offered a Tuesday special for
high school students. If high school students showed their student ID cards, they
would be given 50 cents off any special meal. This practice is an example of:
► Collusion.
► Price discrimination.
► Two-part tariff.
► Bundling.
Figure
In figure given above, the marginal utility of income is:
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Question No: 14 ( Marks: 1 ) - Please choose one
In monopoly, which of the following is NOT true?
► Positive issues.
► Normative issues.
► Micro issues.
► Macro issues.
► Duopoly.
► Cartel.
► Market sharing monopoly.
► Natural monopoly.
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Which of the following events could cause the aggregate demand curve to shift to the
right?
► Keynesian.
► New classical.
► Old classical.
► New Keynesian.
► Monetarism.
► Rational expectations.
► Keynesian economics.
► Neoclassical economics.
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Question No: 24 ( Marks: 1 ) - Please choose one
Intermediate goods are meant for:
► Government debt.
► Capital.
► The amount of money held by the public.
► Inventory investment.
► Imports rises.
► Exports falls.
► Durable goods consumption rises.
► Military spending falls.
► 1.0.
► 0.8. mailer.fsu.edu/~jcobbe/2013/f01/qz3f01.doc
► 5/7 = 0.71.
► 6/7.8 = 0.77.
► 0.2.
► 0.4.
► 0.6.
► 0.8.
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► An increase in the overall level of economic activity.
► An increase in the overall price level.
► A decrease in the overall level of economic activity.
► A decrease in the overall price level.
► The pound value of all final goods and services produced in the economy during a
particular time period and measured in current prices.
► The pound value of all goods produced for final consumption by households in a
particular year and measured in constant prices.
► The current pound value of all new and used goods produced and sold in the
economy during a particular time period.
► The market value of all final goods and services produced by the economy
during a given time period, with prices held constant relative to some base period.
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Question No: 44 ( Marks: 1 ) - Please choose one
Gross domestic product (GDP) is the market value of:
► MT=PV.
► VT=PM.
► MV=PQ.
► MY=VP.
► 45.
► Infinity.
► 1.
► 0.
ANSWER: Private Cost Of Advertising: The private cost of advertising is the cost
incurred by firm in making the advertisement i.e newspaper adds, tv commercials etc.
The firms do not take into account the nuisance faced by people due to these
advertisements otherwise the firms would do less advertisement.
Marginal Social Cost: Marginal social cost is not a monetary based cost. It is the cost
borne by the society as a whole. It is the cost of consumption of one next unit.
ANSWER: Exogenous Growth Theory: The major conclusions derived from the
exogenous growth are as follows:
• The steady growth rate of real GDP depends on exogenous rates of growth of
population (n) and technology (t). There are no policies for government for how
to affect the steady growth rate of a country. Higher savings can only have a little
effect on income it cannot cause long term growth because savings cause
diminishing returns to investment and capital accumulation.
• If one country started with lower income and capital than another country, the
poorer country will grow faster to catch up the richer country and then both the
countries will grow together.
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α
y = sAk
Con ve rg ence to
ste ady state
O k0 k1 k2 k
k
(Marks: 4+6)
(Marks: 2+4+4)
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Theses theories are generally not successful in lower income countries (LICs). Because
they caused the problems of:
• Devaluation: It raises the price of imports and also increased the inflation while
the real wage rate could not increase.
• Stabilization hurts poor: decrease in expenditure always badly effects the poor
which can then cause political instability.
• The steady growth rate of real GDP depends on exogenous rates of growth of
population (n) and technology (t). There are no policies for government for how to affect
the steady growth rate of a country. Higher savings can only have a little effect on income
it cannot cause long term growth because savings cause diminishing returns to
investment and capital accumulation.
• If one country started with lower income and capital than another country, the poorer
country will grow faster to catch up the richer country and then both the countries will
grow together.
FINALTERM EXAMINATION
Fall 2008
Marks: 85
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► One, same.
► Two, same.
► One, opposite.
► Two, opposite.
► Decrease money supply to increase interest rate and increase aggregate demand.
► Increase money supply to increase interest rate and increase aggregate demand.
► Decrease money supply to decrease interest rate and increase aggregate
demand.
► Increase money supply to decrease interest rate and increase aggregate demand.
► Rise.
► Fall.
► Remain unchanged.
► None of the given options.
► State bank.
► National bank.
► Finance minister.
► World bank.
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Question No: 11 ( Marks: 1 ) - Please choose one
Fiscal policy is the government program with respect to its:
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Question No: 16 ( Marks: 1 ) - Please choose one
Economic activity moves from a trough into a period of --------------- until it reaches
a ------------------ and then into a period of ------------------.
► Expansion; trough; recession
► Recession; trough; expansion
► Expansion; peak; recession
► Recession; peak; expansion
► 0.2.
► 0.4.
► 0.6.
► 0.8.
► Government debt.
► Capital.
► The amount of money held by the public.
► Inventory investment.
► Full employment.
► Flexible wages and prices.
► Equality between saving and investment.
► High rates of unemployment.
► With less consumption and more savings the interest rate will drop.
► In the short run workers are fully employed and cannot produce enough to get to
long run equilibrium.
► Wages and prices are flexible in the short run.
► Wages and prices are sticky in the short run.
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► Upward sloping due to the law of demand.
► Upward sloping due to the law of marginal utility.
► Downward sloping due to the law of diminishing returns.
► Downward sloping due to the law of supply.
► Strategic interaction.
► Monopolistic competition.
► Oligopoly.
► Collusion.
► Duopoly.
► Cartel.
► Market sharing monopoly.
► Natural monopoly.
► Positive issues.
► Normative issues.
► Micro issues.
► Macro issues.
► Prices fall.
► Prices rise.
► Incomes fall.
► Incomes increase.
► Risk neutral.
► Risk loving.
► Horizontal.
► Vertical.
► Negative.
► Positive.
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Question No: 46 ( Marks: 1 ) - Please choose one
The extra value that consumers receive above what they pay for that good is called:
► Producer surplus.
► Utility.
► Marginal utility.
► Consumer surplus.
► Demand is elastic.
► Demand is inelastic.
► Supply is elastic.
► Supply is inelastic.
if the supply curve of dollars shifts to the right due to rise in exports, the government role
in foreign markets will be very good. Because due to rise in exports government will
exchange money and they will gain high price against its currency. The government will
increase its exports so it raises the price of its currency in foreign exchange.
b. If the demand curve for dollars shifts to right due to rise in imports.
If the demand curves for dollars shifts to right due to rise in imports, the government
should decrease the imports rate to save the currency from falling its price. Basically rise
in imports decreases the price of currency in foreign exchange markets. So government
will slow down the imports and will try to increase its own products to complete the
necessary requirement of the country.
(Marks:5+5)
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Some times People are afraid because of decrease in saving rate and from low exchange
rate. They don’t put their money in banks. And they sometimes don’t invest. For a good
economical grwoth extra time is required which more people don’t want to wait.
Sometimes the savings rate from banks is too low.
AA If there is a higher participation rate and GDP per capita rises, would output
per worker also rise? Give your answer with brief explanation.
Yes, because when the rate of GDP per capita rises, there will be more and more chances
for employment and the life of people will become standard. They will increase the salaries
and wages of workers. By this way the workers will be motivated and they will produce
more output.
(Marks:4+3+3)
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